A Business Law view on the New Criminal Law 2010 in Spain

On the 23rd December 2010 the new reformed Penal code will come into force. This is one of the major law updates since 2003. The new modifications are designed to provide new devices for fighting town planning and organised crime and for the Spanish legal system to adjust to other legal systems within the EU. 150 law articles are being updated, both in term of types of crimes and types of sanctions.

The major new change is the introduction in Spain of criminal liability for Legal Entities. “Legal Entity” is a juridical term for companies, cooperatives, business associations, corporations and municipalities, as opposed to an individual.

These types of laws are already in force in countries like the UK, Italy, France and Germany and it is a step forward for the integration of legal systems in the EU.

1) Criminal liability for Business Entities

Criminal liability will be extended to Legal Entities. This does not preclude the criminal responsibility of the private individual but according to the magnitude and the type of crimes, the sanctions will be targeted at the company as well as the company managers or the employees committing the crimes.

The type of business crimes in the viewfinder of the Spanish authorities will be in particular money laundering, tax and social security evasion, bribery, town planning crimes and environmental offences.

In a literal translation of the Criminal code, legal and business entities will be liable for: (1) The crimes committed on their behalf or to their benefit by the individuals within the company entrusted with management authority; and (2) The illegal acts committed by any other person subject to company management in the course of company business on behalf and to the benefit of the company, resulting from the company not having exercised the required degree of control according to the particular circumstances.

Even though penal responsibilities of individuals and legal entities will be mostly related, they will be treated independently, leading to cases where perhaps the legal entity is considered responsible while the individuals are absolved.

2) Corruption in international commercial transactions

This law extends criminal responsibilities to Legal entities for international bribery cases. This new law introduces the concept of “foreign public official” to Spain.

3) Corruption between individuals in the private sector

This new law is an almost direct transcription of a new European Union law to fight international corruption, with the objective to make the EU market more fair and competitive. It is intended to punish anyone who promises, offers or confers an illegal advantage, to officers, directors, employees or partners of a business or a society, association, foundation or organization. Furthermore, recipients of these benefits will be equally punished.

In practice the objective is to ensure the proper and fair functioning of the market, eradicating unfair business practices that allows, in some way, to gain some competitive advantages that would otherwise not have been possible.

Application of the new laws and hedging risks

For these crimes sanctions for individuals can vary from 6 months to 6 years in prison including fines ranging up to ten times the amounts transacted.

For Business Entities or companies apart from the fines, the sanctions can be extremely severe, from the disqualification from public contracts to the dissolution of the company.

It is important to note that according to the law, the company can hedge or protect itself partially or totally against liability by putting control measures in place. These measures will be self-regulating mechanisms voluntarily implemented by the company in order to track and prevent illegal acts by the management or the employees, ensuring that the business activities are conducted strictly according to the law.

In practice this can be fulfilled by correctly educating the employees in relationship with the new anti corruption regulations, creating a public code of conduct for the company and creating a department for double checking transactions and the prevention of illegal activities.

The existence of these mechanisms will in most cases exclude the business from criminal liabilities or at worst it will be considered by the court as mitigating circumstances.

Preparing the company to the new Laws

These changes will affect every company in Spain and in particular companies operating internationally, in the construction business or dealing with public administration contracts. It is important to avert the risk by preparing a suitable code of conduct and an employee education programme. Even a small company should do this. Your Spanish lawyer will be able to advise you and help you to prepare your company regarding these new laws.